House Republicans are pushing back on Senate GOP negotiators over how long to extend President-elect Trump’s tax cuts, which are due to expire at the end of 2025.
Sources familiar with the early discussions between Senate and House Republicans say the House GOP is floating the idea of a four-year extension of the law so that its impact on the federal deficit, as determined by the Joint Committee on Taxation, won’t give House conservatives sticker shock.
Sources familiar with the closely held talks emphasize they are fluid and nothing has been decided yet.
“We’re having conversations with them and with our colleagues about that and so those are continuing,” incoming Senate Majority Leader John Thune (R-S.D.) said of the discussions over how long to extend the Trump tax cuts.
Speaker Mike Johnson (R-La.), House Ways and Means Committee Chair Jason Smith (R-Mo.) and House Budget Committee Chair Jodey Arrington (R-Texas) know they’ll be operating with a very small majority next year and won’t be able to afford more than a few defections from fiscal conservatives in the GOP conference.
That’s why they’re mindful about how much a package could add to the deficit. Â
A 10-year extension of Trump’s tax cuts would add more than $4 trillion, which might not sit well with fiscal hawks in the House who are alarmed over the size of the nation’s $36 trillion debt. Of that staggering sum, $28.5 trillion is held by the public and $7.4 trillion is held by the government.
A shorter-term extension of the expiring tax law — say a four-year extension — would be scored by the Joint Committee on Taxation as adding much less to the deficit.
A tax package with a smaller price tag would be easier to pass through the House and would require fewer offsets to placate conservatives who are worried about the political optics and fiscal implications of adding more than $4 trillion to the debt.
Senate Republicans, who will be operating with a comfortable 53-seat majority next year, want to extend the expiring Trump tax cuts for at least another 10 years, which would give individuals, families and many businesses more certainty about the future.
Thune, a member of the Finance Committee who was a key architect of the 2017 tax law, signaled that his preference is for a 10-year extension. But he cautioned that leaders need to figure out what package can get the votes to pass.
“It’s certainly aspirational,” he said of a 10-year extension. “But it’s always going to be what the traffic will bear.
“We’ve got to figure what the House can pass and what we can pass, but we are having those discussions as we speak,” he said.
One Senate Republican source called the House GOP’s concerns about the budgetary impact of the tax package and the desire to limit its duration “bananas,” arguing that a full 10-year extension should be the starting point of any talks.
Sen. Mike Crapo (R-Idaho), who will take over as chair of the powerful Senate Finance Committee next year, is calling on Republicans to adopt a novel budget concept.
He says the GOP should score the tax package as a continuation of current policy, which means the cuts set to expire at the end of the year wouldn’t count if they are extended. That interpretation would lead to a much smaller budgetary score.
Congress has always scored tax cuts under current law.
Since the Trump cuts are due to expire at the end of next year, the cost under current law of extending them another decade would be huge — more than $4 trillion — compared to letting them expire.
Crapo says the traditional scoring system, which would calculate the tax package as adding to the deficit, is broken. Â
“Under our current scoring rules the failure to stop tax increases from happening is being consider a deficit,” he told Larry Kudlow in an interview on Fox Business, warning that if the Trump tax cuts expire it’s a “$4 trillion tax increase on Americans, $2.5 trillion of which will fall on people making less than $400,000 [a year.]”
“There is a difference between a tax increase and $4 trillion of spending, and we just have to get that message out to America,” he said.
Crapo says he’s talked to Trump about the issue and that the president-elect agrees with his view.
“He agrees. He knows that we have got to be bold and strong and tell the American people what’s really going here in this fight, and he wants to go big,” he said.
“We could try to change the baseline and we may be able to do that and force them to score it differently,” Crapo said of the steps GOP lawmakers could take to guide the Congressional Budget Office and the Joint Committee on Taxation, the agencies that will calculate the official price tag of the tax bill.
A spokesperson for Senate Finance Committee Republicans said they want to extend the Trump tax cuts for as long as possible.
“Many Senate Republicans have expressed a desire for as much permanency as possible,” Amanda Critchfield said.
Some conservative Republicans are already balking at the idea that the tax bill’s impact on the deficit can be waved away by scoring it as a continuation of current policy, calling it Crapo’s argument a budgetary “gimmick.”
“The need to offset is certainly something that is on our radar,” said a conservative GOP aide. “A very large portion of this — I would love to start at all of it — should be paid for by following-through on President Trump’s promise to downsize government.
“Reconciliation seems like a pretty solid opportunity to make that happen,” the source added.
The aide said, “the Finance Committee and Ways and Means folks may be squabbling over how to decrease the score as much as possible because they don’t want to go as far as we probably should to pay for it.”
The source warned that some conservatives might have a problem voting for a tax package that is scored as adding trillions of dollars to the deficit if it isn’t paired with major spending cuts.
Just a few defections in the House would be enough to sink a tax bill if Democrats stay unified and vote against it.
Rohit Kumar, co-leader of PwC’s national tax office and a former Senate GOP leadership aide, said while Crapo’s strategy of not scoring the budgetary impact of the tax package up front may be a tough decision to make politically, it would avoid other tough decisions in the future. Â
“If we use the current policy baseline, then we don’t have to worry about the beyond-the-budget-window effects and we can do permanence and if we can’t do permanence we can at least do 10 years,” he said. “His argument is we make one decision up front … and it makes every decision that we make afterward a lot easier.
“The contrasting approach is that first decision is too hard to make, we can’t make it, we have to stick to the current-law baseline. And then you end up making a bunch of smaller but maybe more hard choices: Which provisions to extend? How long to extend them? Which offsetting tax increases can pass muster? Which offsetting spending reductions can pass muster?”
Right now, Republicans are projected to control at least 220 House seats, and Democrats are projected to control at least 213. There are undecided races in California’s 13th and 45th districts, where ballots are still being counted.
But the projected math is further complicated by the departure of several Republican lawmakers who will join the Trump administration, such as Rep. Mike Waltz (R-Fla.), who is resigning in January to become Trump’s national security adviser.
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